a guide for foreign investors 2015

Doing Business in Iran A Guide for Foreign Investors

2015

POURIA SAHEBIranian Lawyers Office

Lawyers building, No.1533 Shariati St.,Tehran, Iran Tel: +(98) 912 430 3059 +(98) 21 22 61 11 97

Iranianlawyersoffice.com

http://iranianlawyersoffice.com


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Table of Contents Intorduction 3

Iran Overview 4

International Trade & Investment in Iran 5

Business Environment 7

Foreign Investment Laws Overview 8

Foreign Protection Act 9

Starting a Business in Iran 12

Free Zones 13

Business Organizations 14

Employment 17

Employment of Foreign Nationals in Iran 18

Trade Laws of Iran 19

Taxation System for Foreign Investors 20

Intellectual Property 24

Legal System of Iran 26

Court System & Dispute Resolution 27

Legal Services in Iran 28

Iranian Lawyers Office

Introduction

What are the key considerations when planning to establish or acquire a business in Iran? What are the potential opportunities, and where are the possible pitfalls?

We’ve organized this guide into what we hope you’ll find to be a useful and user-friendly resource for foreign investors seeking to conduct business activities inside of Iran. Beginning with an overview of the Iranian political and legal systems, the guide proceeds through the areas of law most likely to affect your business decisions: foreign investment, international trade, taxation, intellectual property, employment and etc.

The discussion in each section is intended to provide general guidance, and is not an exhaustive analysis of all provisions of Iranian law with which your business may be required to comply. For this reason, we recommend you seek the advice of one of our lawyers on the specific legal aspects of your proposed investment or activity. With office in Iran’s major commercial centre (Tehran), Iranian Lawyers Office has substantial presence and capabilities to help you successfully complete any business transaction in Iran.

The information in this publication is current as of may 2015 unless otherwise indicated.

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Doing Business in Iran Was developed by Iranian Lawyers Office as a basic guide to the legal aspects of establishing or acquiring a business in Iran.

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Iran Overview

Iran is the second largest economy in the Middle East and North Africa (MENA) region after Saudi Arabia, with an estimated gross domestic product (GDP) of USD 369 billion in 2013-14. It also has the second largest population of the region after Egypt, with an estimated 77.3 million individuals in 2013. Its economy is characterized by a large hydrocarbon sector, small scale agriculture and services sectors, and a noticeable state presence in manufacturing and financial services.

Iran’s vast natural resources are not confined to oil; it has one of the largest natural gas reserves accounting for nearly 16% of the world’s total. Iran is also highly bequeathed with deposits of zinc (4th largest in the world) and copper (9th largest in the world). Over the last few decades Iranian economy has been diversified and aside from the oil industry, which still remains an attractive and profitable area for investment, a whole range of diverse investment opportunities exists too. The country is endowed with a growing, educated population and high quality human resources.

Iran is a major producer of steel, cement and petrochemicals in the Middle East and North Africa. There are many thriving opportunities in Iran in telecommunications, software development, tourism, banking and finance with the potential to generate outstanding returns on investment.

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Iran is the world's 17th most populous nation

World’s 2nd largest natural gas reserves.

Iran’s petrochemical exports to over 60 countries in 2011 reached $14Billion USD.

2nd Cement producer in the region and 8th in the world.

Contains the 2nd largest copper mine in the world (5% of the world’s total).

Production of 5 million square meters of hand made carpets per year.

GDP of Neighbour Countries of Iran (Billions USD)

012

525

037

550

062

575

087

510

00

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

F20

17F

2018

F20

19F

EgyptIslamic Republic of IranIraqQatarSaudi ArabiaUnited Arab Emirates

International Trade & Investments

Trade with Iran is subject to certain restrictions derived from the sanctions imposed by the United Nations Sanctions (UN), European Union Trade Restrictions (EU), and US Trade Sanctions (OFAC). The Iranian economy rebounded out of recession, with growth estimated at 3.0% in 2014 compared to a contraction of 1.7% in 2013. This comes as a result of the temporary and partial easing of sanctions imposed on Iran’s oil exports, on the supply chain in key sectors of the economy—such as in the automobiles industry—and on the transactions of international and domestic banks, as well as a rise in consumer and business confidence that a comprehensive agreement between Iran and the P5+1 is within reach. Iran’s major trading partners are shown in the chart below:

5

Iran Trade Volume in 2014 by Countries (Millions USD)

China

UAE

South Korea

Turkey

India

Swiss

Germany

Italy

Netherlands

Taiwan

Russia

England

France

Singapore

Sweeden

Brazil

Austria

Malaysia

Belgium

Pakistan

$0

$1,00

0

$2,00

0

$3,00

0

$4,00

0

$5,00

0

$6,00

0

$7,00

0

$8,00

0

$9,00

0

$10,0

00

$11,0

00

$12,0

00

$13,0

00

ImportsExports

International Trade & Investments

Islamic Republic of Iran, as a strategic country, has got common borders with states of ESCWA in South and West, SAARC in East and CIS and Caucasus as well as UNECE in North. With Iran’s rise as a regional and international economic power with lots of comparative and competitive advantages and the new historic role in envisaged for contribution of private sector in the national economy, the country is mostly focused on transfer of high technology, modern managerial skills, higher local completion and new export markets in the context of its foreign investment promotion program to assists in forming and efficient and sound coalition between the local private sector and foreign investors.

Iran has one of the most diversified economies of any middle eastern country, where most of its major industries are state owned and partially listed on the Tehran Stock Exchange (TSE). Iran is the last remaining major emerging economy in the world with a young and dynamic population and a thriving business community committed to enter the global market.

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Iran is hoping to attract billions of dollars' worth of foreign investment by creating a more favourable investment climate.

Other Industries 20.9%

Professional Services 2.1%

Investment Groups 2.2%

Pharmaceutical2.4%

Auto Manufacturing 2.9%

Telecom 6.9%

Metal Industry11.3%

Banks11.7%

Financial Services 14.6%

Petro Chemicals24.3%

Iranian Industries Market Capitalization - June, 2014

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Business Environment

The diversity of the Iranian economy, volume of natural resources and highly educated young workforce makes Iran a great place for future foreign investment. The recent developments on the nuclear deal and recognition of significant governments effort to make Iran a more suitable place for investment during the last couple of years may transform Iran to a global economy in the near future. The government has established many new ground rules to protect and guide foreign investors in doing business in Iran and the private sector of the economy have always been interested in working closely with foreign entities to expand their network to the global market. The economy of Iran has the capability and infrastructure to become the biggest economy in the middle east with more than 80,500 km of roads and 10,400 km of railways connecting Asia to Europe and save 30% on all international transit costs.

Business investment in Iran mostly have high rates of return. The average rate of return on investment in real-estate, telecom, mining and oil industry of Iran is more than 44.9% and the inflation rate of the economy for 2014 was under 16.0% which is estimated to decrease significantly in 2015.

7

Bach

elor

'sM

aste

r'sPH

D

0

400,0

00

800,0

00

1,200

,000

1,600

,000

MaleFemale

University Education of Iran in 2012 (number of active students)

0%

10%

20%

30%

40%

50%

60%

70%

Cement Telecom Realestate Pharmaceutical Mineral Ore Petrochemicals

59.6%55.4%53.0%

35.9%33.4%32.2%

Annual Industry Return on Equity June 2014 (%)

Foreign Investment Laws Overview

Foreign direct investment in Iran is allowed only through participation of foreign persons in the equity capital of existing and new Iranian companies. Maximum foreign participation in the joint companies is 49% however, this proportion will be determined on merits of each project. The Law for the Attraction and protection of Foreign investments of 1995 (The Law) provides the legal framework for the approval of all foreign investments in Iran.

In accordance with Article I of the Law, foreign natural or legal persons importing capital, either in cash or in the form of machinery, etc. into Iran with the permission of the government of Iran for the purpose of development and productive activities in industry, mining, agriculture and transportation shall enjoy the facilities provided by the Law. In general, the facilities referred to among other things, are the annual transfer of net profits in the currency of the original investment, repatriation of the original capital and the accrued profits derived there from and proceeds of the sale of capital or shares and the remaining portion of capital in the event of liquidation government guarantee of fair compensation in the event of expropriation, all at the exchange rate of the Central Bank's selling rate on the day of actual transfer, and with the legal facilities accorded to domestic investors.

Organization for Investment Economic and Technical Assistance

The OIETAI was founded in June 1975 to conduct and perform a host of activities which, before its establishment, were delegated to different government agencies. The activities mandated to the OIETAI have all an external nature with global international affairs. It ranges from investment to financing as well as from bilateral to regional and international relations.

The president of the Organization is ex-officio the Deputy Minister for Investments and International Affairs of the Ministry of Economic Affairs and Finance. The Organization performs its duties in accordance with its statutes and such other legislation governing foreign investment in Iran, Iranian investments abroad, external financing whether extending loans and credits to other countries as well as borrowings from international sources, coordinating and expanding relations with other countries and regional, as well as international economic and financial institutions and agencies.

The Organization is legally empowered to represent the central investment promotion authority of the government of the Islamic Republic of Iran by providing legal protection and full security to foreign investments by way of facilitating the flow of capital into the country under the new Foreign Investment Promotion and Protection Act (FIPPA) ratified in May 2002. Investment Licensing Process

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Submission of application to

OIETA

Report to Foreign

Investment Board (FIB)

Review Application by

FIB

Communication of Draft License

Issuance of Investment

License

Request for Appeal

Request for Appeal

Foreign Investment and Protection Act

Since 1955, the legal framework of Iran’s foreign investment regime had been defined under the Law for the Attraction and Protection of Foreign Investments (LAPFI). In line with reforms in the overall economic framework, Iran’s Assembly undertook to propose and approve a new bill concerning foreign investment law. The new Foreign Investment Promotion and Protection Act (FIPPA) was ratified in May 2002, replacing the LAPFI of 1955.

Some developments introduced by FIPPA for foreign investments in Iran can be outlined as follows:

❖ Broader fields for involvement by foreign investors, including involvement in major infrastructure.

❖ Recognition of new modes of foreign capital exposure in addition to foreign direct investment, e.g. project financing, buy-back financing arrangements and build - operate - transfer (BOT) investment schemes.

❖ Streamlined and fast - track investment licensing application and approval process.

❖ Creation of a one - stop institution called the Centre for Foreign Investment Services at the Organization for Investment, Economic and Technical Assistance of Iran (OIETAI), for focused and efficient support for foreign investment undertakings in Iran.

❖ Further liberalization of foreign exchange mechanisms as enjoyed by foreign investors.

❖ Introduction of new legal options governing government - investor(s) relations.

Foreign entities as well as Iranian nationals importing capital from abroad are considered foreign investors. Foreign investment is allowed for the purpose of development and rehabilitation and productive activities in the areas of industry, mining, agriculture and services.

Foreign investment is possible in all areas of economic activity. A foreign investor, by importing capital (as defined in a very broad and diversified form, being in cash or in kind, or being machinery and equipment, raw materials, parts, specialized services as well as intellectual property for the purpose of investment in industry, mining, agriculture and services), is eligible to enjoy the privileges and facilities provided by the FIPPA. Foreign investors must apply and obtain the investment license and FIPPA coverage to enjoy the advantages and facilities of the law.

The FIPPA provides for protection and security of the interests and rights of foreign investors against non-commercial risks. This would commit the Iranian government not only to facilitate the free flow of capital repatriation but also to full and fair compensation for acts of expropriation by the government, as well as for the interruption of a foreign investor’s activities.

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The FIPPA does not impose any restriction whatsoever on what is deemed to be legally permissible in the manner of investment, the type of investment, the volume of investment, the percentage of shareholding, profit and capital repatriation as well as internal mutual relations between the parties to an investment project.

Generally speaking, the FIPPA provides security against non-commercial risks. These risks are usually insured by the export credit and investment insurance agencies. The risks related to transfer issues and expropriation remain the basis of the risks attributed to an investment in a recipient country. The FIPPA honours all the rights and entitlements of investors by facilitating and making available the necessary foreign exchange for transfer purposes either transfers of profits or capital repatriation. There is no limitation imposed on the amount of profits to be transferred, nor on capital and gains on capital to be repatriated. In the event of expropriation and nationalization of foreign assets, investors are entitled to receive compensation based on the fair market value of the expropriated assets on the day immediately before expropriation takes place.

The FIPPA also recognizes the rights of foreign investors in cases where, as a result of the enactment of a law and/or a decision by the government, the implementation of a project is seized or interrupted. In such cases the government is obliged to guarantee all the payments which should have been paid on maturity. Foreign investors will enjoy the same and equal treatment that is accorded to local investors. There should be no discrimination vis-à-vis foreign investors, and all facilities, privileges; exemptions will be equally extended to foreign investors. In addition, a “most favoured nation” treatment may also be applicable to investors from countries with which the Iranian government has entered into a Bilateral Investment Treaty (BIT) which provides for more favourable treatment than national treatment.

FIPPA introduces new legal options in respect of government-investor relations, which symbolize the receptive and constructive approach of the Iranian government toward safeguarding the interests of foreign investors. Facilities have been placed in the areas of entry & exit visas, residence & work permits for investors, managers, directors and experts, as well as their immediate relatives. These facilities are provided on a long-term basis which creates comfort and confidence for those involved in investment projects.

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The FIPPA provides for investment in all areas of economic activity in Iran. In fact, no area, other than those related to arms, ammunition and security, is closed to foreign investment. According to Article (3) of the FIPPA, foreign investment is divided into two broad categories:

Foreign Direct Investment

Investing in all areas open to the Iranian private sector by way of direct equity participation in the share capital of Iranian companies whether in Greenfield projects or in existing firms or companies. Foreign shareholding is not limited to percentage in Iranian entities.

Foreign Indirect Investment

Foreign investors may invest in business opportunities in Iran through contractual arrangements in any type of investment other than direct investment. This category enables foreign investors to enter in the areas which are closed to the private sector of the Iranian economy or areas in the upstream fields or national projects in which a direct participation is not by law permissible.

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Starting a Business in Iran

Starting a business in Iran requires 6 easy steps and takes 12 days on average to complete. The total amount of costs is 3.1% of income per capita and investors can start a business with minimum of 1,000,000 rials which is equivalent of $30 of capital. Iran currently stands at 62 in the ranking of 189 economies on the ease of starting a business and continuously works toward making the process of starting a business in Iran easier for investors. During the last five years the following regulatory reforms have been taken towards making it easier and safer to start a business in Iran:

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2010 The Islamic Republic of Iran simplified business start-up by introducing an electronic registration system.

2011 Iran eased business start-up by installing a web portal allowing entrepreneurs to search for and reserve a unique company name.

2013 Iran made starting a business more difficult by requiring company founders to obtain a criminal record clearance to register a new company.

2015 The Islamic Republic of Iran made starting a business easier by streamlining the name reservation and company registration procedures.

Business Environment of Iran 2015 (Scale: Rank 189 centre, Rank 1 outer edge)

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Free Zones

Establish your business in the free zones of Iran and you will be exempt from paying any taxes for the first 15 years of your activities in the Free Zones; In addition, you can now establish a company in the free zones of Iran without any limited number of shares. Currently 6 major district have been dedicated to Free Zones of Iran in order to encourage foreign investments.

The table below provides information regarding Free Zones of Iran:

The purpose of “Free Industrial & Trading Zones” is to attract foreign and local investments in industrial, trading and other areas of business providing incentives for investors to conduct their business more easily in Iran. Eliminating the unnecessary formalities and regulations will help starting your business easier and faster in the “Free Industrial & Trading Zones” of Iran. Please review some of the advantages of establishing your business in the Free Zones:

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Economic activities in free trade and industrial zones are exempted from value-added tax.

Import goods without paying any custom duty fees;

Manufactured goods in free zones imported to mainland will be free of any custom duties;

No restrictions on transporting and re-exporting your goods;

Possibility of joint venture and foreign and local investments;

Free transfer of capitals and funds;

Tax exemption for 15 years;

Banking and transactions are governed by the regulations of the Free Zones;

Labour issues, social security coverage and foreigners recruitment are governed by the regulations of the Free Zones;

Retail sales are for local and foreigners;

Granted visa at the port of entry “Free Zones”;

Name Location Province Area

Anazali Trade - Industrial Free Zone Caspian Sea Gilan 3,200 Ha

Aras Trade - Industrial Free Zone Caspian Sea East Azerbaijan Province 1,670 Sq. Km

Arvand Trade - Industrial Free Zone Persian Gulf Khuzistan 170 Sq. Km

Chabahar Trade - Industrial Zone Chabahr Gulf Sistan and Baluchestan 14,000 Ha

Kish Trade - Industrial Free Zone Persian Gulf (Kish Island) Hormozgan 90 Sq. Km

Qeshm Trade - Industrial Zone Persian Gulf (Strait of Horomoz) Hormozgan 300 Sq. Km

Business Organizations

A wide variety of legal arrangements may be used to carry on business activity in Iran. Some of the more commonly used arrangements are corporations, limited partnerships, partnerships, co-ownerships, joint stock company and limited liability companies.

The selection of the appropriate form of business organization will depend in each case upon the circumstances of the investor, the nature of the activity to be conducted, the method of financing, income tax ramifications and the potential liabilities related to the activity.

Generally, one of the first issues faced by a foreign entity contemplating carrying on business in Iran is whether to conduct the business directly in Iran as an Iranian branch of its principal business, or to create a separate Iranian entity to carry on the business. We will provide you with the necessary information to establish the most suitable type of business in Iran. Consider the following information for establishing a company Iran:

❖ 100% Ownership of your company;

❖ Incentives of Free Zones of Iran;

❖ Foreign Investment Promotion & Protection Act;

100% Ownership

Foreign investors can now establish their company with 100% ownership of the shares and control of their business. This can be an advantages to some of the companies willing to be more involved in the Iranian market providing them with more security and stability as a foreign investors. There are Two types of companies which can be registered for foreign investment opportunities:

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1) Limited Liability Company

2) Joint Stock Company

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Limited Liability Company

A Limited Liability Company (Sherkat ba Masoliat Mahdoud) is defined as a company formed by 2 or more individuals to conduct business transactions and activities. Limited Liability Company is based upon the direct contributions of the partners to the partnership and not by share subscription.

The formations of limited liability partnership is deemed to have taken place when the capital in cash has been fully contributed and when non-cash contributors have been assessed and delivered. The name of the company must always include the phrase “Limited Liability” otherwise under the law the company will be considered as a general partnership.

Joint Stock Company

A Joint Stock Company (Sherkat Sahamie Khas) is defined as a company formed by 3 or more individuals to conduct business transactions and activities. Joint Stock Company is based upon the direct contributions of the partners to the partnership and not by share subscription.

The formations of Joint Stock Company is deemed to have taken place when the capital in cash has been fully contributed and when non-cash contributors have been assessed and delivered. Branch

Foreign Companies can establish a branch of their company in order to conduct their business in Iran. The Branch will be a foreign company and act as a branch under mother company and may operate in the following areas of activities:

❖ Post sales service for the goods or services of the mother company.

❖ Carrying out the contracts terms between Iranians and mother company.

❖ Plan future investment of the mother company in Iran.

❖ Collaborate with Iranian experts for business activities in neighbour countries.

❖ Participate in non-oil exports market in Iran.

❖ Regulating duties in the areas of clearance from government organizations and services in the fields of transportations, insurance, banking and marketing, etc.

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A local branch office of a foreign company is the subordinate of the mother company which carries out the objectives and business transaction for the mother company. The operation of the branch office will be conducted under the name and responsibility of the mother company.

The branch office is subject to Iranian laws in areas such as labor, social security, taxation, etc. The government protects the legal rights of a registered branch office as of the mother and domestic companies. Review the below table below to find out more about the types of companies:

Limited Liability Company

Joint StockCompany

Branch Office

Company Law

Iranian Commercial Law, Iranian Attraction and Protection of Foreign

Investment Act, Originally enacted in 1995





Company Obligations - - Mother Company

Founder 2 or more 3 or more Mother Company

Initial Capital Requirement 1,000,000 Rials 3,000,000 Rials -

Liability Limited by Shares Limited by Shares Mother Company

Cost of Incorporation About $150 USD About $200 USD About $150 USD

Incorporation Statutes and RegistrationArticles of Incorporations

and Registration Registration

Company Name Free and Company Form Free and Company Form Mother Company

Formalities and Process Low Moderate Low

Credit / Funds Generally Possible Generally Possible Possible

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Employment

Since the formation of International Labor Organizations, labor standards have been introduced and promoted through the instruments and In 1998 ILO codified labor standards in "Declaration on Fundamental Principles and Rights at Work”. The principles presented in the declaration included: nondiscrimination in respect of employment & occupation; the eliminations of forced labor (freedom of access to work); the elimination of child labor (right to have appropriate conditions of work) and the freedom of association & the right to collective bargaining. According to the principle of Freedom of Contract in Islamic law people are free to make any sort of contract not contrary to the law.

Iranian labor law is primarily derived from the principle sources of Islamic Fegh' h. freedom of access to employment is recognized through article 10 of Civil Code and article 2 of Labor Code. Principle 28 of Iranian Constitution stipulates: Every person has the right to choose a job he/she wishes, a job which is not contrary to Islam laws, public policy and the rights of others. Definition of worker in the new Iranian Labor Code (1990) is a person who works by the offer of employer and in return for a payment which includes salary, wage, profit and every other advantage, not with standing the title of this payment.

There is a minimum national wage applicable to each sector of activity fixed by the Supreme Labor Council which is revised annually. In 2014 the minimum wage, determined by the Supreme Labor Council, was about US$195 per month (US$2,340 per year). Membership in the social security system for all employees is compulsory. The national poverty line for Tehran in the year ending March 20, 2014 was $9,612 per year and the national average was $4,932.

The comprehensive Labor Law covers all labor relations in Iran, including hiring of local and foreign staff. The Labor Law provides a very broad and inclusive definition of the individuals it covers, and written, oral, temporary and indefinite employment contracts are all recognized. The Iranian Labor law is very employee-friendly and makes it extremely difficult to layoff staff. Employing personnel on consecutive six-month contracts is illegal, as is dismissing staff without proof of a serious offence. Labor disputes are settled by a special labor council, which usually rules in favour of the employee. The Labor Law provides the minimum standards an employer must adhere to when forming an employment relationship. The minimum age for workers in Iran is 15 years, but large sectors of the economy (including small businesses, agricultural concerns, and family-owned enterprises) are exempted.

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Employment of Foreign Nationals in Iran

Foreign nationals are prohibited from working in Iran unless they receive work and employment permits (even if they are supposed to receive wage and salary outside the Iranian territory). The work permit serves as the employment license for the foreign nationals in Iran.

The work permit for the employment of foreign nationals in Iran is issued by the “Department General for Employment of Foreign Nationals”(also called Department for Employment of Expatriates) of the Ministry of Cooperatives, Labor and Social Welfare upon a request by Iranian employers. In provincial capitals it is issued by the Foreign Citizens Divisions of the Department General of Cooperatives, Labor and Social Welfare. (The general procedure for admission of foreign investment has been brought separately in the following part.)

The Iranian employers are obligated to seek the permission of the Department General for Employment of Foreign Nationals before concluding any contract that may lead to the employment of foreign citizens in Iran. The rules and regulations for acquiring work permit for the foreign nationals are available in the Labor Law of the Islamic Republic of Iran, ratified in 1990 (articles 120 through 129 and executive bylaw of Article 129). Although due to abundance of educated job-seekers in the country and for the purpose of reducing unemployment rate of the educated and skilled job-seekers the Technical Board for Employment of Foreign Nationals has strict rules and regulations (stipulated in Article 121 of Labor Law) for issuance of work permits. The Foreign Investment Promotion and Protection Act (FIPPA), passed in 2002, has considered promising provisions for issuance of work permits for foreign investors, managers and experts in relation with the investments under FIPPA.

Validity Period of Work Permits

The work permits of foreign nationals is issued, extended or renewed for a period of one year.

Extension of Work Permits

Upon expiry of the work permit, if the Iranian employer still needs the specialty of expatriates, he/she can apply for the extension of the work permit of his foreign labourer or expert. The application is sent to the Technical Board for Employment and upon approval the permit is extended for a period of one year.

Renewal of Work Permit

Foreign nationals with valid work permits whose contracts with employer become null and void for any reason, will be subject to renewal of work permit after changing the employer. The renewal of work permit – upon the change in employer or the type of work – will be carried out by the responsible divisions of the Ministry of Cooperatives, Labor and Social Welfare after the approval of the Technical Board for Employment of Foreign Nationals.

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Trade Laws of Iran

Iran Customs Administration is a government organization under supervision of Ministry of Economic Affairs and Finance which plays vital role as protector of the country's economic borders and coordinator at entry and exit gates of the country and is responsible for executing customs laws and regulations related to export, import, transit and collecting duties and customs taxes and presenting technical requirements and facilitating the trade in the country.

The general guideline of the custom laws of Iran does not prohibit any other goods from entering the country other than the list below but usually certain permits and licenses are required in order to clear your goods from customs.

✤ Alcoholic drinks;

✤ Gambling tools;

✤ Weapons, ammunition and explosive goods;

✤ Narcotic drugs;

✤ Magazines, photos, films and snaps and those goods, which are against religious and national dignity of the country.

✤ Any type of writings which are against the official religion of the country and /or disturbing discipline and public purity and national dignity.

✤ Those types of goods which have legitimate and legal prohibition and /or their import and export have not been allowed according to the customs tariff table or special rules.

Import Registration

The import of all importable commodities by the governmental or non-governmental importers except in following cases will be subject to registration and receiving import certificate from the Ministry of Commerce upon observing other stipulated rules and regulations.

Trade Certificate

Trade certificate is a document for import or export of products. Trade certificates are issued by the Chamber of Commerce, Industries and Mines in Tehran or other provinces for the qualified applicants (whether Iranian or non-Iranian real and legal entities) for a period of one year.

Temporary Import

The import before export of raw materials and goods needed for manufacturing, finishing, preparation and packaging of export commodities relevant to Article 12 of the Export/Import Rules and Regulations, passed on Sept. 26, 1993

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Trade Laws of Iran and Status of Goods

Allowed Goods Do not require permission to be cleared from customs

Conditional Goods Require permission(s) to be cleared from customs

Prohibited Goods Illegal by the laws of Islamic Republic of Iran

Taxation System for Foreign Investors

Foreign investors in Iran enjoy the same supports and privileges offered to the Iranian investors. The Direct Taxation Law passed in 1987 and the following amendments have considered no discrimination in taxation of domestic and foreign investors. This means both Iranian and foreign investors pay the same amount of taxes. Tax exemptions and discounts are also equally granted to domestic and foreign investors.

The Direct Taxation Law, passed in 1987, is regarded as the core of the taxation system in the Islamic Republic of Iran. The law was extensively reviewed and reformed in 2001 to be in tandem with the ongoing economic conditions in the country. Production and investment promotion in line with the economic development of the country was one major factor behind the need for amendment of the law (supporting the newly established manufacturing and mineral units according to Article 132 and investment promotion according to article 138).

Taxable Real and Legal Entities According to Direct Taxation Law

❖ All owners, whether real or legal, for their properties inside Iran according to the taxation rules under Chapter 2 of the Direct Taxation Law;

❖ Any real person residing in Iran for the incomes earned inside and outside the country;

❖ Any Iranian real person residing abroad for all the income he makes in Iran;

❖ Any Iranian legal entity for the incomes earned inside or outside the country;

❖ Any non-Iranian real or legal entities for the income earned in Iran, and also for the income gained through delegation of authority dealership, technical and educational assistance or movie contracts (for any sort of income earned as rental, right of display and the like) in the territory of the Islamic Republic of Iran;

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The aggregate income of companies, and also the income, from the profit-making activities of other juridical persons derived from different sources in Iran or abroad, less the losses resulting from non-exempt sources and minus the prescribed exemptions, shall be taxed at the flat rate of 25%, except the cases for which separate rates are provided under the present Direct Taxation Law. Persons, whether legal or real, will not be taxable for the stocks or the dividends of their shares in other capital corporations

Factory owners and legal entities are obligated to, even within the exemption period, submit profit or loss report, balance sheets provided from their official statutory books maximum four months after their tax year (March through February in Iran) along with the list of partners including number of shares and addresses to the appropriate tax department of the legal entity (Article 110). If these legal entities do not submit the documents within the stipulated time span any tax exemption will be null and considered void (Article 193).

Types of Taxes in Direct Taxation Law

Taxation for foreign investors fall under two categories of property and income tax in Iran. Since manufacturing units and economic enterprises are usually active as legal entities, we will here under focus on rules and regulations for taxation of legal entities income and their exemptions. Review the tables below for more information.

Property Tax

1) Inheritance tax

2) Stamp duty (It is a type of tax levied on some documents such as, checks, bills of exchange, promissory notes, negotiable instruments stocks and shares, etc …

Income Tax

1) Property income tax

2) Agricultural income tax

3) Salary income tax

4) Self-employment tax (the type of income a person earns in Iran through self-employment).

5) Corporate income tax (special for legal entities)

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Tax Exemptions Stipulated in the Law on Fifth Five-Year Development Plan

The 5th five year development plan of Iran offers the following tax exemptions in order to promote the following business practices:

❖ Facilitate and promote industrial and mineral investment in the country;

❖ Develop of non-oil exports; The Law on Fifth Five-Year Development Plan has stipulated the following tax exemptions:

(a) Article 159 – A: 15 percent increase in tax exemption relevant to Article 138 of Direct Taxation Law

(b)Article 159 – B: Increasing tax exemption period of industrial and mineral units in the less developed regions to the same level as the exemption of free trade-industrial zones (from 10 years to 20 years)

(c) Article 104: Levying any tax and tolls on non-oil exports and services during the Fifth Development Plan (except raw materials or commodities with low value-added).

Highlight of Tax Holidays (Tax Incentives)

In order to encourage development of Iranian industries the tax laws of Iran provides great incentives for foreign investors. The table below provides information regarding the tax holidays of Iran:

Business ActivityLevel of

ExemptionDuration of Exemption

Agriculture 100% Perpetual

Industry and Mining 80% 4 Years

Industry and Mining in Less-Developed Areas 100% 20 Years

Tourism 50% Perpetual

Export of Services & Non Oil Goods 100% During 5th Development Plan

Handicraft 100% Perpetual

Educational & Sport Services 100% Perpetual

Cultural Activities 100% Perpetual

Salary in Less-Developed Areas 50% Perpetual

All Economic Activities in Free Zones 100% 20 Years

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Value-Added Tax Act (VATA) in Iran

The Value-Added Tax Act (VATA) was ratified by the parliament in 2007. Value-added tax (VAT) in Iran is levied on the sale of all goods and services and their imports, except 17 items listed in Article 12 of VATA as the exempted ones. VATA, however, does not include the export of goods and services through official customs gates. Therefore, the taxes paid for the export of goods and services will be refundable by submitting the customs clearance sheets (for goods) and valid documents (Article 13).

Currently, the VAT rate stands at 9% as of 2015 (VAT rate for two special goods of cigarettes and jet fuel is relatively high). To reduce the country’s dependency on oil incomes. The Fifth Five-Year Development Plan has anticipated an annual one-percent increase in the VAT rate to put it at 9% in year of 2015.

Agreements to Avoid Double Taxation

To facilitate cooperation between Iranian nationals and foreign nationals and to boost trade and economic exchanges with foreign countries, the government of the Islamic Republic of Iran has signed mutual agreements to avoid double taxation.

List of Countries Signed the Agreement to Avoid Double Taxation with Iran (November 2011)

Azerbaijan Armenia Ukraine Pakistan Russia Kyrgyzstan

South Africa Uzbekistan Bahrain Turkmenistan Sri Lanka Kazakhstan

Germany Spain Belorussia Turkey Switzerland Qatar

Austria Algiers Bulgaria Tunisia Syria Georgia

Jordan Indonesia Venezuela China France Lebanon

Poland Kuwait

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Intellectual Property

Iran is a member of the WIPO since 2001 and has acceded to several WIPO intellectual-property treaties. Iran joined the Convention for the Protection of Industrial Property (Paris Convention) in 1959. In December 2003 Iran became a party to the Madrid Agreement and the Madrid Protocol for the International Registration of Marks. In 2005 Iran joined the Lisbon Agreement for the Protection of Appellations of Origin and their International Registration, which ensures the protection of geographical names associated with products. As of February 2008 Iran had yet to accede to The Hague Agreement for the Protection of Industrial Designs.

Agencies Responsible for IP Policy in Iran

❖ The Department of Authors, Composers and Artists at the Ministry of Culture and Islamic Guidance is the main responsible body for copyright matters.

❖ The Industrial Property Office at the Organization for Registration of Deeds and Estates of the Judiciary of Iran is in charge of industrial property affairs.

❖ The Iranian Research Organization for Science and Technology deals with the operationalization of national technology development plans and policies, issuance of scientific certificates and examination of feasibility or industrial applicability of proposed projects and inventions.

Copyright and Related Rights

Copyright and related rights are protected under The Law for Protection of Authors, Composers and Artists Rights (1970) and The Law of Translation and Reproduction of Books, Periodicals and Audio Works(1973). Also these works on the internet are protected under the Electronic Commerce Act (2003). However, Iran has not acceded to any international convention or agreement on copyright and related rights protection (e.g. Bern and Rome Convention). Therefore there are some lacuna and contrary regulations with international conventions in our legal system.

Intellectual Property of Iran

1) Copyright and Related Rights

2) Industrial Property

24 24

Intellectual Property

Industrial Property Laws of Iran Carry Out the Following Acts:❖ The Paris Convention for the Protection of Industrial Property, Stockholm (1967 & 1979).

❖ Madrid Convention and Protocol.

❖ Lisbon Agreement for the Protection of Appellations of Origin and their International Registration.

❖ Bilateral Investment Treaties.

❖ Patent and Trademark Registration Act 1931 ("the Act”).

❖ Regulations for the Execution of the Patent and Trademark Registration Act 1958 ("the Regulations”).

❖ Software Act 2000 (Protection of Rights of Computer Software Act 2000).

❖ Electronic Commerce Act for the protection of some industrial property in E-Commerce (on the Internet) (2003).

❖ Appellation of Origin Act (2004).

❖ Islamic Penal Code (1998).

❖ Civil Liability Act (Articles 1 & 8) (1960).

The Iranian government has also adhered to a number of other international conventions and a committee composed of intellectual property law experts is working on a Draft Act on the Protection of Patents, Industrial Designs and Trademarks and Names prepared by the International Bureau of the World Intellectual Property Organization (WIPO) which will soon be submitted to the Islamic Consultative Assembly.

Protection of Industrial Property

The Paris Convention provides the following protection of industrial property:

1) Patents;

2) Utility models;

3) Industrial designs;

4) Trademarks;

5) Service marks;

6) Trade names;

7) Indication of source or appellations of origin;

25

Legal System of Iran

The Iranian legal system is a civil law system which is founded on the French law and Islamic jurisprudence. The Iranian Civil Code, which comprises of three volumes and 1335 articles, was enacted between 1928 and 1935 and only minor amendments have since been made to its provisions.

The Iranian courts refer to the Civil Code as the main source of law for determining the legal and commercial rights of natural and legal persons. The awards issued by the Iranian courts are not binding as precedent on other courts residing over cases with similar facts. However, in exceptional cases the decisions of the General Board of the Supreme Court concerning similar cases constitute case precedent to be followed by other courts.

The Civil Procedure Code of the Public and Revolutionary Courts, which was approved in 2000, set forth the rules and procedures governing adjudication of disputes by the courts of law. The Civil Procedure Code envisages the rules and procedures concerning proceedings which must be observed by the courts, including the Public, Revolutionary, Appeal and Supreme Court.

The Iranian legal profession distinguishes between legal advisers and attorneys at law. Generally, legal advisers provide clients with legal advice, but do not have rights of audience before the Iranian courts.; However, legal advisers to government entities are the only exception. Legal advisers must possess a law degree, but do not need to hold any professional qualifications or be licensed by the Iranian Bar Association.

Attorneys are licensed by the Bar Association are able to appear before all courts in Iran, regardless of their experience. There are exams and training periods to complete before an attorney is licensed by the Bar Association. There is a separate qualification route for attorneys to be licensed by the judiciary, rather than the Bar Association. Judiciary attorneys are limited in the types of dispute on which they may act and the courts before which they can appear.

26 26

Court System & Dispute Resolution

The courts of Iran are mostly classified according to their area of jurisdiction, civil or criminal, and according to the seriousness of the crime or the litigation. In an Iranian court the judge acts as prosecutor, jury, and arbiter; the system is a form of the inquisitorial system. However, according to Article 168 of Iran's constitution, in certain cases involving the media a jury is allowed to be the arbiter. The judge holds absolute power and all judges are certified under Islamic law and most, but not all are members of the ruling clergy.

The growth in volume of trade and investment in Iran over the recent years, in particular the energy sector, has laid the foundation for the creation of TRAC, which is the first Iranian arbitration institution to provide assistance and support to domestic and international arbitration tribunals.A growing number of Iranian businesses when concluding contracts with foreign companies refer their commercial disputes to arbitral tribunals constituted in accordance with the arbitration rules of TRAC or other ad hoc arbitration rules as agreed between the parties.

Iran is party to more than 50 Bilateral Investment Treaties (BITs), with capital-exporting countries which provide institutional rules of the International Chamber of Commerce (ICC) in Paris or ad hoc arbitration rules of UNCITRAL for settlement of disputes arising out of investment between foreign investors and the Iranian government or state entities.

Courts of Iran

1) Courts of First Instance (public courts with jurisdiction over civil and the majority of criminal cases);

2) Appellate Courts;

3) The Supreme Court;

Major Dispute Resolution Institutions of Iran

1) The Iranian Chamber of Commerce, Industries and Mines established the Arbitration Tribunal pursuant to a law adopted by the parliament in 2000.

2) The Tehran Regional Arbitration Centre (TRAC), which was established in 2004.

27

Legal Services in Iran

Attorneys in Iran usually work as individual and there are currently a few small law firms (5-10 employees) practicing in Iran. There are no specialized lawyers in Iran and most of the attorneys practice in all areas of the law; however there some law offices mainly focused on international clients and can provide services in English. Although their experience may be limited in working with foreign companies in Iran and selecting an appropriate office can become timely.

Law offices in Iran may provide other services such as accounting, taxes, company registration, and also may have business consultants to help clients acquire reliable insight and advice on their business objectives in Iran. consider the information below when selecting a law office in Iran:

Selecting the Appropriate Attorney

Attorney with a license from Bar Association;

Advance english speaking;

Experience with foreign companies;

Availability and response time;

Discuss costs and payments

28 28

29

Contact

Lawyers building, No.1533 Shariati St.,Tehran, Iran

Tel: +(98) 22 00 82 91

+(98) 912 430 3059

Email: [email protected]

[email protected]

Website: Iranianlawyersoffice.com

Iranian Lawyers OfficeWe would like to introduce ourselves as a law office in Iran providing our clients with professional legal services of the highest caliber, combining technical excellence with commercial awareness and a practical, constructive approach to your legal issues.We are a team of experienced and talented lawyers graduated from the most prestigious and distinguished universities in Iran. Iranian lawyers office capabilities extend across the commercial law, contracts, with particular expertise in trade regulation law, joint venture projects, local and international partnerships and agency agreements. The office also advises on activities related to oil and gas, free Trade zone, branch office, investment regulations, and the registration branch office and companies, intellectual property rights in Iran and etc. We also have very skilled associates in litigation and defending the civil and penal cases before Iranian courts. Our lawyers know how to manage legal expenses and we don't subscribe to the uncontrollable, stopwatch billing model favoured by most law offices. Whenever possible, we offer affordable fee for our services so you can properly plan and budget for our services.

This publication was developed by VEDIA Management & Marketing Co. Vedia.ca

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